The Morning Call
3/25/15
The Market
Technical
The indices
(DJIA 18011, S&P 2091) broke their recent up day/down day pattern---it is
down 2 days in a row. However, they
remained well within their uptrends across all timeframes: short term
(16833-19609, 1964-2945), intermediate term (16908-22059, 1779-2533 and long
term (5369-18860, 797-2116). Both stayed
above their 50 day moving averages. I still think it likely that they will
mount another challenge to the upper boundaries of their long term uptrends but
that they will be unable to break meaningfully above those boundaries. However, another couple of down days and that
potential assault will be history; and a lower high (last Friday’s high) will
have been set.
Volume was down;
breadth was negative. The VIX was up again and again intraday it bounced off
the lower boundary of a developing pennant formation. It remained within its short term trading
range, its intermediate term downtrend, its long term trading range, and below
its 50 day moving average. I continue to
think that, at these prices, it represents cheap insurance for the trader.
I ran another
study on our Universe: with the S&P and Dow in confirmed uptrends across
all timeframes, in a Universe of 145 stocks, 72 were in confirmed uptrends, 50
were in trading ranges for one or more timeframes and 23 were in
downtrends. This isn’t a bad score; but
it hardly reflects a market near challenging the upper boundary of its long
term uptrend.
The long
Treasury advanced nicely, continuing to build the case that it has
stabilized. It finished within its short
term trading range, intermediate and long term uptrends, above its 50 day
moving average and is developing a very short term uptrend.
GLD’s price rose
again, closing within its short and intermediate term trading ranges, its long
term downtrend and below its 50 day moving average. In addition, it negated a very short term
downtrend. There are still a number
resistance levels to overcome before this chart repairs itself; but you have to
start somewhere.
Bottom line: the
Averages continue their stellar performance and they seem about to challenge
the upper boundaries of their long term uptrends---yesterday’s somewhat
disappointing pin action notwithstanding.
However, there are a number of internal indicators that don’t reflect
that strength, including the most recent look at our internal indicator. This reaffirms my conviction that any attempt
to break above those boundaries will prove unsuccessful.
You
(and I) won’t know when the bull market is over (medium):
What
to own when it is time to ‘sell in May’ (short):
Fundamental
Headlines
Yesterday’s
US economic news was not just mixed but for a change contained some very upbeat
numbers from primary indicators. The bad
news was the March Richmond Fed’s manufacturing index was disappointing and
February CPI was over estimates; however, month to date retail chain store
sales improved from last week, the March Markit PMI was better than anticipated
and February new home sales were much better than expected---though there was some
unusual internals to that figure.
Nonetheless, we have to take good news anyway we can get it.
Overseas,
the stats also held upbeat results: the EU March Markit flash composite PMI
came in near a 46 month high. On the
other hand, the China March manufacturing index showed contraction and global
trade was at its lowest level since Lehman.
Meanwhile,
Merkel and Tsipras met (that’s a plus) and mouthed a lot of niceties about
wanting to reach a resolution to the Greek bail out problem (not for the first
time).
Five
takeaways form Merkel/Tsipras meeting (medium):
http://blogs.wsj.com/briefly/2015/03/23/5-takeaways-from-angela-merkels-meeting-with-alexis-tsipras/
Soros
on Greece and Ukraine (short):
US
House ups the ante on Ukraine (medium):
Bottom line: finally,
more than one lonely positive datapoint that might indicate that the US and
global economies may not be sliding as quickly or by as much as seemed likely
last Friday. Of course, any upbeat stat
is now an outlier. So we need lots more
of the same before optimism on the economy comes into plays. On the other hand, in bizarro world where
good news is bad news and vice versa, the upbeat numbers suggest Fed tightening
could come sooner than later---which wasn’t helped by the ex food and energy
CPI number.
Unfortunately,
if the economic data continues negative corporate earnings will sooner or later
be negatively impacted and that will probably not be greeted with love in stock
land.
All this taking
place as equity prices toy with all-time high absolute prices and
valuations.
I
can’t emphasize strongly enough that I believe that the key investment strategy
today is to take advantage of the current high prices to sell any stock that
has been a disappointment or no longer fits your investment criteria and to
trim the holding of any stock that has doubled or more in price.
Bear
in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and
their cash position is a function of individual stocks either hitting their
Sell Half Prices or their underlying company failing to meet the requisite
minimum financial criteria needed for inclusion in our Universe.
Assets
at Fed have started to decline; what that means (short):
Assessing
the risk of overvalued markets (medium):
2015
potential black swans (short):
The
Fed is ‘bubble blind’ (medium and today’s must read):
Investing for Survival from Gatis Roze
21 Rules for Investing
1) Sell based on technical indicators and
find out the fundamentals later.
2) Accept losses to get gains. Risk
and reward are always part of the equation.
3) Pick your favorite couple of
indicators, learn them and trust them in depth. Learn how and when they
work, when they don’t. Ignore the rest.
4) Understanding yourself as an investor
/ trader is crucial to success. Mark Douglas’s book, Trading in the Zone,
is sensational.
5) Keep track of your trades. Know
why you bought and why you sold. Review your reasons after you close out
a position.
6) First review your long-term charts,
then your medium-term ones, then short term and finally minute-to-minute
charts. Go from a telescope to a microscope.
7) Knowing the individual equities that
comprise your ETFs and mutual funds is an insight worth utilizing.
8) Watch for sectors and industry groups
breaking out of a base – then find the best stocks in that industry. At
least fifty percent (50%) of the performance is determined by these and will
help rescue you from a poor stock pick.
9) A chart tells you about the true
market fundamentals of a company – believe in the charts first. They
matter more than the fundamentals.
10) Thinking of the market as being
manipulated by Mr. Market as he tries to achieve his objectives has been truly
a revelation. I’ve discovered that Mr. Market’s true intentions are
revealed in minute-to-minute charts and money flow.
11) There is a difference between a good
company and a good stock chart. I want both.
12) The market is always changing and
evolving. You must be willing to change along with it. Don’t fight
it. You aren’t big enough.
13) Appreciate that the market offers
you a menu of probabilities. Certainty is not on the menu. Be
comfortable playing the probability game.
14) Read my own rules every week.
15) Constantly be aware of shedding old
habits that fail to contribute to the “new you” – the improving investor you’re
becoming. Shed weakness, feed strength.
16) Charting sister stocks along with
the stock I bought has proven to be surprisingly powerful.
17) Know what you’ll do in a bullish
scenario. Know what you’ll do in a bearish scenario, so you won’t start
second guessing yourself in the midst of a big move during market hours.
18) Understanding myself as an investor
is far more important than I ever previously acknowledged.
19) Sophisticated money managers talk
about the importance of money management. I did not appreciate its
importance for profitable investing until just recently. It’s made a big
difference.
20) Pyramid purchases into your model
position and let the market prove to you that your first buy was correct.
Pyramid out faster than you pyramid in.
21) Know your stop. Adjust it
regularly as the stock moves up. Don’t ignore your stop.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Month
to date retail chain store sales versus the prior year improved from last week.
The
Markit March PMI came in at 55.3 versus expectations of 54.7.
February
new home sales rose 7.8% versus estimates of a decline of 3.9%.
In the weeds look at the
numbers (short):
The
March Richmond Fed manufacturing index was reported at -8 versus forecasts of
+2.
Weekly
mortgage applications rose 9.5% while purchase applications increased 5.0%.
February
durable goods orders dropped 1.4% versus consensus of +0.7%.
Other
More
government pension money moving into riskier investments (medium):
Politics
Domestic
International War Against Radical Islam
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